If you build it downtown, they will come

If you listen closely, you just may hear the death knell of your nearest suburban strip mall.

Both the Baby Boomer generation and their progeny, Generations X and Y, have come of age in the era of the strip mall. Excessively developed and easily accessible retail space seemed a birthright for all.

In point of fact, there was roughly 18 square feet of retail space per person in 1990 — a phenomenal figure to start with. However, this figure more than doubled to 40 square feet per person in 2010, according to a national study by a land development firm.

The glut of developed mini-mall properties is now left fallow, as businesses large and small continue to struggle. The national strip mall vacancy rate is currently 10.9%, the highest it has been since 1991. According to an expert in the commercial property market, this is not just the result of the general economic downturn, but poor planning for demolition of old commercial outlets and a lack of forward-looking strategy on behalf of commercial real estate developers.

In a study of two outlets owned by a prominent book retailer, one located in a traditional strip mall with ample parking and the other located in a bustling city center, the urban location performed much better on all fronts.

The astronomical national vacancy rates of suburban strip malls, coupled with the successes of urban commercial developments, sends a signal to developers that development strategies must change if retail outlets are to remain viable over the long plateau of this economic recovery.

first tuesday take: The impending demise (or at least relative failure) of strip malls across the nation is a reflection of broader trends in the California real estate market — trends that must be respected and responded to now in the new real estate paradigm. [For more information about the new real estate paradigm, see the May 2010 first tuesday articles, Looking through the window towards recovery: a real estate paradigm shift — Part I and Part II.]

There is currently a potential for a great confluence of renters. As California’s society gains mobility as they are able to sell their homes and move, but finds themselves increasingly disillusioned by the vicissitudes of homeownership, the suburban sprawl that now exists will continue to decay. In response, urban neighborhoods close to jobs, areas of cultural significance, entertainment and fine restaurants will flourish, especially as Gen-Y is much better educated. [For more information on the great confluence of renters, see the February 2011 first tuesday article, Rentals: the future of real estate in CA?.]

Commercial vacancy rates were undoubtedly spurred by the economic downturn. However, the persistence of vacancy rates is due to the unwillingness and failed thinking of retailers to follow these prevailing trends in the current real estate market.

The logic is simple: people are moving to urban areas and retailers want to sell goods to people; retailers must move to urban areas in order to meet the demand of consumers.

Strip malls are quickly becoming a relic of a bygone era — the bastion of an outdated suburban consumer’s ideal that began with motels and gas stations on Route 66. If retail outlets are to compete with the super-giants of ecommerce, they will have to follow the people – and the people are moving. [For more information on the paradigm shift in the conception of housing, see the February 2011 first tuesday article, The generations have spoken, who will listen? and the October 2010 first tuesday article, The demographics forging California’s real estate market: a study of forthcoming trends and opportunities — Part I and Part II.]

1 Comment

Michael Hixson
on March 21, 2011 at 10:07 am

Not sure where the demographic data is coming from to support this opinion, as virtually every recent study indicates a net outmigration from city centers to suburban or exurban locations for most cohorts in the population. Net in-migration to city centers is driven by immigration, and even this group shows strong desire to relocate to suburban locations when economically feasible. One exception in California is San Francisco, but high prices often preclude many from relocating to the city. Note the collapse of new construction, and the current economic troubles of existing urban development.

klesb Mike, you have identified the problem well. Democrats in government are anxiously trying to apply their economic theories to issues that require market based solutions... – Los Angeles rental crisis continues in 2019

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